Leasing Solar Panels

I’d like to buy a solar electric system but am not sure I can afford to purchase one. Is leasing a system a better option?

I hear this question a lot. Solar electric systems have never been more affordable than they are right now, thanks to record-low module costs, generous federal tax incentives and financial incentives offered by many local utilities. Even so, out-of-pocket costs for a system that would meet the needs of a family of four for at least 30 years could run as much as $15,000 to $25,000 — or even more, depending on available incentives and the household’s annual energy consumption. Not surprisingly, a price tag like that creates sticker shock in a lot of potential customers.

Don’t despair! For those who can’t afford the upfront cost of a solar electric system, one option is to secure a loan so that you can make monthly payments. In some cases, this option can result in payments lower than your current monthly electric bill. And, as you suggested, solar leases can be another good option.

You could potentially lease a solar electric system from any third party, but it would typically be from a company that specializes in solar leases. Two such companies are SunRun and SolarCity, but you’ll want to search online to find what’s available in your area.

In general, two types of solar leases are available. The most common is an operating lease. In this case, the third party (the lessor) installs the system at its expense and is therefore considered the owner of the system. It receives all the tax benefits, such as the current 30 percent federal investment tax credit, and local utility rebates, if any. The terms of lease agreements vary considerably and are often tailored to the finances of the homeowner or business owner (the lessee). Some operating leases require no upfront payment, while others require a small down payment. The cost of maintenance and component replacement may fall on the shoulders of either the lessor or the lessee.

After the system is up and running, the customer pays a monthly fee to the lessor, which includes a lease payment and payment for the electricity the system generates. These payments are typically structured so that the combined cost results in a slightly lower monthly utility bill than the lessee was paying before the installation of the solar electric system. The lease payments are typically designed so the customer’s payments remain stable throughout the lease, but in some cases, lease payments may contain a built-in escalation.

Operating lease agreements often last 10 to 15 years. At the end of the lease agreement, the lease may be renewed, the customer may buy the system at fair market value, or he or she may request the system be removed — usually at no cost.

The second type of solar lease is known as a capital lease or a lease-purchase agreement. In this form of lease, the lessee agrees to purchase the solar electric system at the end of the lease at a price negotiated upfront. As a result, the customer/lessee is considered the owner of the system and therefore receives any tax benefits and local incentives.

Solar leasing can be an attractive investment. Because the cost of solar electric systems, the details of solar leases and available incentives vary significantly, making generalizations about costs is difficult. However, individuals who enter into lease agreements often pay slightly less over the long term than those who finance their own systems through home equity loans. In addition, those who lease systems often pay less than those who self-finance systems by taking money out of savings. Be sure to study your options carefully. Hire an accountant or use cost calculators provided by lease companies to compare leasing a solar electric system with the outright purchase of one.

— Dan Chiras, contributing editor

Above: Leasing a solar electric system can be a great deal. Photo by Fotolia.

The price for solar panels have dropped quite a bit since this article was written, making leasing solar panels an even worse idea today. Check out http://solar-power-now.com/cost-of-solar/ to find get the up-to-date price of solar power as of 2015.

Patriot1st

2/27/2015 9:48:20 AM

One more poorly thought out, rehashed article from Mother Earth.
Here is a question to think about; what if you want to or need to move? What if something happens to the house? It is not good.
If you have a major storm or fire, you are out of the system, but not the lease. Few insurance polices will cover them, unless you have a specific rider for the system.
You are stuck for the lease, period! But wait it gets worse and quickly.
http://www.newsmax.com/BradleyBlakeman/Roof-Solar-Panels-Fraud/2014/03/14/id/559661/
Leasing it the absolutely worst way to "purchase" anything. You will always pay more than buying it. You have very little recourse in the event of something going wrong, and the worst part is you are stuck!
The only people that like leases are those getting the money from the lease!!
While leasing an auto can make some sense for a business, it is one of the worst methods of financing any purchase for an individual.
Never lease a solar system. Unless you like being a giant sucker.
Even borrowing the money on your home is at best a poor idea, look at the total numbers of the cost over the period of the loan, it will jump out at you when you do this.
The cost projections going forward for energy are not close to what are used for "solar savings" by having a solar panel system on your house.
I am in favor of using solar and many other methods, I am just not in favor of people being swindled and that is most of what is happening with leases!
From the BBB, worth reading too. Notice not many comments about how good of a deal leasing is, but lots of warnings about how easy it is to be swindled.
http://www.bbb.org/blog/2012/06/dont-fall-for-a-solar-paneling-scam-this-summer/
Never lease, unless you really like paying out the nose for something!

Jackwillam

11/13/2014 4:15:42 AM

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SacramentoSolar

11/25/2013 1:56:27 AM

When leasing...

- You do not own the solar panels.
- Your home value does not go up.
- You do not get any tax credits or rebates. The company does.
- Your lease payment can (and will) increase over time as energy costs rise.
- You either buy the (already degraded) panels at the end of the term, or you pay a penalty.

Ownership is the way to go, even if it costs a little more in the short term. Many companies offer great financing options, too.

Eddie
http://www.sacramentosolarcompany.com/

ray.boggs.39

7/14/2013 6:53:38 PM

Hi Dale. I would suggest that you re-read your contract very carefully before signing, because there is no way that you will be able to participate in a pre-paid lease or any sort of solar lease for that matter without forfeiting the 30% federal tax credit to the leasing company.

And "no money upfront" isn't entirely true either. The 30% federal tax credit on a typical 6kW solar system at the solar leasing company's higher prices is about $10,000.00. So insist that the leasing company tell you what the tax credit amount is and add that to the pre-paid amount that you will pay and that's what your rented system will really cost you.

Please check back come tax time in 2014 because I am absolutely certain that you'll find that you will not be able to file the 30% federal tax credit on a solar system that you do not own. You really need to talk to your tax preparer before signing.

Tom Bergstrand

3/16/2013 4:00:25 AM

When we retired we had everything set up to be paid off. Therefore we own everything with no debt. So if there is a tax rebate we can't take advantage since our income is too low to even pay taxes. I would really like to put a 2K system in for my garage since we keep 2 freezers and a refrigerator in there. If there is a "problem" with electricity we can at least maintain cold for our foods. I have spoken to several companies and to tell the truth it's like walking down a carnival midway. One fella told me that the electric company is giving a $2 a watt rebate and they (the company) are also giving a $2 a watt rebate. So, do the math. How much does a watt cost for them to make a profit? I finally found a company that thinks like me. I will build the racks to hold the solar panels. I will find the best deal on the panels. I will buy the batteries and all the other componants. I will set it all up using their suggestions as to where to physically place all the "stuff". Then they will come in and work their magic with all the wiring. I will stay in touch with them.

Serenity Farm NM

3/15/2013 9:45:40 PM

We have been researching an option for going 100% solar for our small farm. The problem? We are on a long term lease. We are completely responsible for all maintenance & repairs to the home & ANYTHING on/in the 4 acres. It seems however that since we don't "own" on paper buying outright or DIY is our only option.

Candy DeBerry

3/15/2013 6:23:38 PM

I agree with you, David. Last year we were quoted a price of ~$15K for a 5 kW system on a 20 year lease, and the company was going to keep the SRECs. Two days ago we signed a contract to purchase a 5.2kW system, and we'll get the SRECs, for $12K. Estimated time to pay off is 14 years. After that our electricity will cost zero for the remainder of the life of the system... and these panels are warranted for 25 years. I think the main reason that leasing is attractive financially is that it costs much less upfront (you don't have to wait up to a year for the 30% federal tax credit). And I'm glad that people do it rather than keep using fossil fuel. But if you can afford to own, I don't see any benefits in leasing.

Dale Moss

3/15/2013 4:39:22 PM

We went with a deal slightly different from those mentioned in the article: it's a 20-year prepaid lease, but we get the SRECs and tax credits. At the end of the lease term we have the option to buy the system at its depreciated value or request its removal. There was no money upfront; we paid nothing until the system was up, running, and connected to the grid. Since there were delays in construction (owing to zoning requirements and the possible frailties of an ancient barn), it was nice not having to fret about spending money with nothing to show for it. We live in W. Massachusetts but used One Block Off the Grid, which operates out of San Francisco. All details were handled by computer/phone. The actual installation was by a local contractor engaged by SunEdison. Apart from the delays, the process was simple and painless. We figure leasing cost about half what installing the panels ourselves would have run.

HawkEyes

8/7/2012 12:48:12 AM

Build your own panels and save tons of money.

SAMANTHA JANE DINGS

4/27/2012 3:20:08 PM

We went with the fully pre-paid lease option from Solar City. Yes, they got all the incentives and the SRECs, but they also have to take care of the system if it's having an issue, and we don't have to give them any more money than that one payment we made when the system went online last August... we'll see what happens in 19.5 years when the lease term is up, but for now we're very happy to have a no fuss system and a stack of 'No payment necessary' electic bills from NSTAR.

David Elliott

4/19/2012 1:47:58 PM

I've been researching solar leases on and off now for about a year. Can anyone explain exactly how leasing is better than owning? It seems to me that the only one who really benefits from a lease agreement is the financier and the installation companies who are owned by them. With prices dropping for solar so quickly it's possible to own your own your system in about 6 years...or less if the price for electricity rises more than 1.8% per year. How is that worse than being locked into a 15 to 20 year contract?

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